The budget deficit reached NIS 9.7 billion in the first half of 2012, well above
the NIS 5.3b. deficit recorded in the corresponding period last year, the
Treasury revealed Wednesday.

Tax revenues reached NIS 106.8b. in the
first half of this year, a shortfall of NIS 2.81b. from the government’s target
– most of it due to unexpectedly low takings from income tax. However, the
Treasury pointed out that June was the first month in which revenues
outperformed expectations.

The government set a 2012 deficit target of
NIS 18.4b. when it published its original biennial budget for the years 2011-12.
The Treasury estimates that the actual deficit will reach at least NIS 29.7b. by
the end of the year, due to a forecast NIS 11.3b. tax shortfall. The annualized
deficit continued its upward trend in June, reaching NIS 33.1b., or 3.7 percent
of GDP.

The Treasury released its latest data just three days after the
cabinet approved Prime Minister Binyamin Netanyahu and Finance Minister Yuval
Steinitz’s controversial plan to double the 2013 budget deficit target to 3% of
GDP. Netanyahu and Steinitz stated that certain taxes will be raised next year,
and that the government will adopt other measures to ensure it meets both
expenditure and deficit targets.

Bank of Israel Governor Stanley Fischer
and Treasury Budgets Director Gal Hershkovitz are among those who have spoken
out against increasing the deficit target to such a high level, with both men
calling for it to be revised to 2.5%.

According to Wednesday’s report,
the Treasury collected NIS 15.9b. in tax revenues in June, a 6.7% increase from
the same period last year. However, capitalgains taxes on real estate dropped
37.8% in June and 29.7% for the year to date compared to the corresponding
periods last year.

The Treasury said this was caused by a sharp drop in
the value of land sales in the first six months of this year, most notably in
the Tel Aviv area – where the total value of land sales has fallen
60%.

Meanwhile, Treasury Accountant General Michal Abadi-Boyanjo sent new
instructions to government ministries Wednesday on increasing supervision of
royalty agreements. She said this was the latest in a series of measures
designed to increase the state’s longterm revenues.

Under the revised
guidelines, accountants in every government ministry must examine existing
royalty agreements pertaining to their office, report back on the standard of
supervision of royalty collections and examine the financial reports of those
bodies that pay royalties.

External auditors will be appointed to
supervise the operations of each body that is required to pay
royalties.

The state collected NIS 1.75b. in royalties in 2011, most of
it from the Communications Ministry, Industry, Trade and Labor Ministry, and
Energy and Water Ministry. However, this figure is expected to increase
substantially once Tamar, Leviathan and other offshore natural gas fields go
online in the coming years.